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HomeMy WebLinkAboutAgenda Report - 11-24-2014 - Oversight Board of the Huntingt AGENDA REPORT Oversight Board of the Huntington Beach Successor Agency to the Redevelopment Agency . MEETING DATE: November 24, 2014 SUBJECT/ACTION: Adopt Oversight Board Resolution No. 2014-09 Approving Two Proposed Assignments and Agreements Related to The Strand Project Disposition and Development Agreement with CIM/Huntington, LLC, Cypress Equities, and DiamondRock Hospitality STATEMENT OF ISSUE: The Oversight Board is requested to approve the assignment of The Strand to Cypress Equities doing business as Capref Acquisitions, LLC, a Texas limited liability company ("Office/Retail Assignee") and The Shorebreak Hotel to DiamondRock Hospitality doing business as DiamondRock Acquisitions, LLC, a Delaware limited liability company ("Hotel Assignee"). RECOMMENDED ACTION: Motion to: Adopt Resolution No. 2014-09, "A Resolution of the Oversight Board of the Successor Agency to the Huntington Beach Redevelopment Agency Approving Two Proposed Assignments and Agreements Related Thereto Pertaining to The Strand Project Disposition and Development Agreement with CIM/Huntington, LLC." BACKGROUND/DISCUSSION: The former redevelopment agency and CIM entered into a Disposition and Development Agreement (DDA) on June 17, 1999. The DDA set forth the development of a hotel with approximately 115 — 130 rooms and 135,000 square feet of commercial space. The Agency contributed both the land and excess project costs. The DDA was subsequently amended with the approval of the First Implementation Agreement on April 6, 2000; the Second Implementation Agreement on March 5, 2001; the Third Implementation on October 30, 2002; the Fourth Implementation Agreement on September 2, 2003; the Fifth Implementation Agreement on July 19, 2004; and the Sixth Implementation Agreement on November 3, 2008. The changes to the project included increased hotel rooms (157 rooms), a boutique hotel in lieu of a business hotel, increased parking, land leases, and Agency assistance. As part of the Agreements, CIM was allowed to create commercial condominiums for the site. The Strand currently consists of a separate commercial condominium for the City-owned parking structure. Since The Strand opened in May 2009, CIM has been operating the project as one project. However, CIM notified the Successor Agency of the decision to create two separate condominium plans and sell the property to two separate entities — retail/office and hotel. The retail/office owner will be the designated property manager. Prior to the Successor Agency request to consider the Assignments, Staff,and Keyser Marston conducted a financial and project review of the two companies. The review consisted of review of the following: • Financial Statements for a 3 year period; • Information-for both companies regarding the experience, expertise, and financial • position including a company description and officer bios; • Annual Report and a company overview; • Resumes of all key personnel that will be involved in The Strand; • Similar projects they own/manage (property ownership portfolio); • California experience; • Corporate Organizational Document for the company that will hold The Strand or • Shorebreak Hotel; • What hotel flags DiamondRock currently owns/operates; • Who and how hotel properties are managed, whether the Hotel portion is recommending a proposed new hotel flag, and how it meets the minimum qualifications in Agreement. The retail/office proposed assignment would be to Cypress Equities, which was founded in 1995, and has offices in Dallas, Atlanta, San Francisco, New York, and Ft. Lauderdale. Cypress has developed and acquired more than 18 million square feet and their current portfolio is over 10 million square feet with a primary focus on retail and mixed-use properties. Cypress Equities currently owns and operates a premier portfolio of high quality assets valued at more than $1.2 billion, consisting of a variety of retail, office and residential real estate properties. Their current acquisition fund is a $400 Million discretionary equity fund exclusively focused on acquiring value-add retail real estate within the continental US. This fund has already closed on seven acquisitions totally approximately $500 Million since June 2013. There is currently over $200 Million remaining from this fund to allocate to future acquisitions (The Strand being one of these). They own similar projects, such as Market Street Place in San Francisco, CA, consisting of 250,000 square feet in a five-story building with one lower level for retail plus two lower levels for parking; Glendale Marketplace in Glendale, CA, a 153,535-square-foot, open-air retail and entertainment center; Lloyd Center, in Portland, OR , a 1,280,053-square-foot regional shopping center; and Brookwood Village, in Birmingham, AL, a 603,857-square-foot, two-level enclosed Mall, a 41,900-square-foot grocery-anchored retail component, plus a nine- story 170,270-squarefoot Class "A" office building. The hotel portion is proposed to be assigned to DiamondRock Hospitality Company. DiamondRock operates as a real estate investment trust and owns a portfolio of 27 premium hotels and resorts containing over 11,000 guest rooms in the aggregate, concentrated in key gateway cities and destination resorts throughout North America and the U.S. Virgin Islands. DiamondRock's vision is to be the premier allocator of capital in the lodging industry with the goal of delivering above average shareholder returns across the full lodging cycle. Each of DiamondRock's hotels and resorts is managed by a third party. Most are operated under a brand owned by one of the leading global lodging brand companies (Marriott TM, StarwoodTM or Hilton TM). DiamondRock regularly analyzes all of the properties in their portfolio, as well as market conditions, to ensure that they are allocating capital to the highest return opportunities. Their ongoing capital allocation activities include renovation projects, marketing non-core assets for sale, and acquisitions. Additionally, DiamondRock's conservative capital structure helps them achieve the optimal balance between value, risk and cost of capital. DiamondRock seeks to further enhance value through efficient corporate overhead, best-in-class corporate governance practices, and openness and transparency in their communications with investors. In recent years, the company has developed a new focus on diversifying the portfolio away from branded hotels. The strategic objective is for the portfolio to go from 64% brand managed to 50%. The past two DiamondRock acquisitions (The Inn at Key West and The Rex Hotel) were each small independent, boutique hotels similar to the Shorebreak. The Rex hotel, located in San Francisco, is currently operated by Commune Hotels, the current manager of the Shorebreak. The strong relationship with Commune Hotels provided another layer of comfort to the potential transaction. DiamondRock's plan is to maintain the Shorebreak name and theme of the hotel that Commune and CIM created. DiamondRock is focused on adding hotels on the West Coast, especially smaller boutique hotels, and for these reasons the Shorebreak is well- suited for the company's refocused strategy. ATTACHMENT(S): 1. Resolution No. 2014-09, "A Resolution of the Oversight Board of the Successor Agency to the Huntington Beach Redevelopment Agency Approving Two Proposed Assignments and Agreements Related Thereto Pertaining to The Strand Project Disposition and Development Agreement with CIM/Huntington, LLC." uver-�, 1 yn L Duaru RESOLUTION NO. 2014-09 A RESOLUTION OF THE OVERSIGHT BOARD OF THE SUCCESSOR AGENCY TO . THE HUNTINGTON BEACH REDEVELOPMENT AGENCY APPROVING TWO PROPOSED ASSIGNMENTS AND AGREEMENTS RELATED THERETO PERTAINING TO THE STRAND PROJECT DISPOSITION AND DEVELOPMENT AGREEMENT WITH CIM/HUNTINGTON, LLC WHEREAS, the Redevelopment Agency of the City of Huntington Beach ("Redevelopment Agency") was a redevelopment agency in the City of Huntington Beach ("City"), duly created pursuant to the California Community Redevelopment Law (Part 1 (commencing with Section 33000) of Division 24 of the California Health and Safety Code) ("Redevelopment Law"); and In furtherance of the Redevelopment Law, the Redevelopment Agency entered into that certain Disposition and Development Agreement by and between the Redevelopment Agency and CIM Group, LLC dated June 17, 1999, which Disposition and Development Agreement was supplemented by that certain [First] Implementation Agreement entered into between the Redevelopment Agency and CIM Group, LLC dated April 6, 2000; that certain Second Implementation Agreement entered into between the Agency and CIM Group, LLC dated March 5, 2001; that certain Third Implementation Agreement entered into between the Agency and CIM/Huntington, LLC, CIM Group, LLC's successor-in-interest, dated October 30, 2002, that certain Fourth Implementation Agreement entered into between the Agency and CIM/Huntington, LLC dated as of September 15, 2003, that certain Fifth Implementation Agreement entered into between the Agency and CIM/Huntington, LLC dated as of July 19, 2004 and certain Sixth Implementation Agreement entered into between the Agency and CIM/Huntington, LLC dated as of November 3, 2008 (collectively, the "DDA"); and The DDA pertains to the development more commonly known as The Strand located in the City of Huntington Beach. The Strand includes retail and office space, a luxury boutique hotel (The Shorebreak Hotel, operated by Joie de Vivre), and a subterranean parking garage owned by the City; and Assembly Bill No. X1 26 (2011-2012 lst Ex. Sess.) ("AB 26") was signed by the Governor of California on June 28, 2011, making certain changes to the Redevelopment Law and to the California Health and Safety Code ("H&S Code"), including adding Part 1.8 (commencing with Section 34161) ("Part 1.8") and Part 1.85 (commencing with Section 34170) ("Part 1.85") to Division 24 of the H&S Code; and Pursuant to AB 26, as modified by the California Supreme Court on December 29, 2011 by its decision in California Redevelopment Association v. Matosantos, all California redevelopment agencies, including the Redevelopment Agency, were dissolved on February 1, 2012, and successor agencies were designated and vested with the responsibility of paying, performing and enforcing the enforceable obligations of the,former redevelopment agencies and 1 Oversight Board Resolution No. 2014-09 expeditiously winding down the business and fiscal affairs of the former redevelopment agencies; and The City Council of the City elected for the City to serve as the successor agency to the Redevelopment Agency upon the dissolution of the Redevelopment Agency under AB 26 ("Successor Agency"); and On June 27, 2012, the Legislature passed and the Governor signed Assembly Bill No. 1484 ("AB 1484", Chapter 26, Statutes 2012); and AB 26 and AB 1484, as further amended, are collectively referred to herein as the "Dissolution Act". The Successor Agency succeeded to all of the interest of the Redevelopment Agency as successor agency pursuant to the Dissolution Act; and H&S Code Section 34179 of the Dissolution Act establishes a seven (7) member local entity with respect to each successor agency and such entity is titled the "oversight board." The oversight board has been established for the Successor Agency (hereinafter referred to as the "Oversight Board"); and CIM/Huntington, LLC ("Owner") is intending to record two condominium plans that subdivide the office/retail/hotel components of The Strand project into the following air rights parcels: (a) in one condominium plan, a boutique hotel consisting of approximately 144,015 square feet of space(the "Hotel Parcel"); and (b) in a second condominium plan, a condominium unit that includes approximately 41,159 square feet of office improvements (the "Office Parcel") and a condominium unit that includes approximately 74,366 square feet of retail improvements (the"Retail Parcel"); and Owner is proposing to sell its interests in the Office Parcel and Retail Parcel to CAPREF ACQUISITIONS, LLC, a Texas limited liability company ("Office/Retail Assignee"). Owner (or CIM/HUNTINGTON HOTEL, L.P., a California limited partnership, an anticipated successor-in-interest to the Hotel Parcel as permitted by the DDA) is proposing to sell, its interests tin the Hotel Parcel to DIAMONDROCK ACQUISITION, LLC, a Delaware limited liability company("Hotel Assignee"); and In connection with the sale of the Office Parcel, Retail Parcel and Hotel Parcel, City staff and Owner have negotiated three proposed agreements; namely, (a) a Termination Agreement by and among Dolores L. Cracch iolo and Salvator W. Cracchiolo, as trustees for the Declaration of Trust dated June 12, 1979, and Salvator W. Cracchiolo and Barbara F. Cracchiolo, as trustees of the Cracchiolo Family Trust dated March 28, 2003 (collectively, "Cracchiolo"), Owner, and the Successor Agency ("Termination Agreement"); (b) an Amendment of Declaration of Covenants, Conditions & Restrictions and Reciprocal Easement Agreement by and among the City, the Successor Agency, Cracchiolo, and Owner ("CC&Rs Amendment"); and (c) a Second Amendment to Agreement Containing Covenants Affecting Real Property by and between the Successor Agency, CIM/HUNTINGTON HOTEL, L.P., a California limited partnership, and Owner ("Second Amendment to Agreement Containing Covenants"). The Termination 2 Oversight Board Resolution No. 2014-09 Agreement releases the Successor Agency, the Redevelopment Agency, and the City from liability with respect to a Ground Lease and Sublease entered into in connection with the DDA ' and The Strand project. The CC&Rs Amendment is necessary to make certain clarifications due to the proposed sale of the Office Parcel, Retail Parcel and Hotel Parcel, The Second Amendment to Agreement'Containing Covenants was contemplated in the DDA as set forth in Section 3 of the Fifth Implementation Agreement to the DDA to reflect separate ownership of the Hotel Parcel and the balance of the Site (as defined in the DDA). The Termination Agreement, the CC&Rs: Amendment, and the Second Amendment to Agreement Containing Covenants may-be collectively referred to herein as the "Transfer Agreements"; and The Transfer Agreements were approved by the Successor Agency on November 17, 2014; and All of the prerequisites with respect to the approval of this Resolution have been met. NOW, THEREFORE, the Oversight Board of the Successor Agency to the Redevelopment Agency of the City of Huntington Beach does hereby resolve as follows: 1. The Oversight Board hereby finds and determines that the foregoing recitals are true and correct. 2. The Oversight Board hereby approves of an assignment of the Office Parcel and Retail Parcel to Office/Retail Assignee, subject to the approval by the Successor Agency's Executive Director of any entity formation agreements and documents (or changes therein) related to the sale, as well as the agreements and documents effectuating the sale; and farther subject to the approval by the Successor Agency's Executive Director of a written assignment and assumption agreement whereby Office/Retail Assignee assumes the rights and obligations transferred by Owner and agrees to keep and perform all covenants, conditions and provisions of the DDA and related agreements which are applicable to the rights acquired. 3. The Oversight Board hereby approves of an assignment of the Hotel Parcel to Hotel Assignee, subject to the approval by the Successor Agency's Executive Director of any entity formation agreements and documents (or changes therein) related to the sale, as well as the agreements and documents effectuating the sale; and further subject to the approval by the Successor Agency's Executive Director of a written assignment and assumption agreement whereby Office/Retail Assignee assumes the rights and obligations transferred by Owner and agrees to keep and perform all covenants, conditions and provisions of the DDA and related agreements which are applicable to the rights acquired. 4. The Oversight Board hereby approves of the Transfer Agreements in the form submitted to the Oversight Board. 5. The Executive Director, or designee, of the Successor Agency is hereby authorized and directed to: (a) make non-substantive changes and amendments to the Transfer Agreements deemed necessary and as approved by the Executive Director of the Successor 3 Oversight Board Resolution No. 2014-09 Agency and its legal counsel; and (b) take such other actions and execute such other documents as are necessary to effectuate the intent of this Resolution on behalf of the Successor Agency. 6. The staff of the Successor Agency is hereby authorized to execute and record such documents and instruments and to do any and all other things which they may deem necessary or advisable to effectuate the intent of this Resolution and any such actions previously taken are hereby ratified. 7. The adoption of this Resolution is not intended to and shall not constitute a waiver of any constitutional, legal or equitable rights that the Successor Agency or Oversight Board may have to challenge, through any administrative or judicial proceedings, the effectiveness and/or legality of all or any portion of the Dissolution Act, any determinations rendered or actions or omissions to act by any public agency or government entity or division in the implementation of the Dissolution Act, and any and all related legal and factual issues, and the Successor Agency or Oversight Board expressly reserves any and all rights, privileges, and defenses available under law and equity. 8. If any provision of this Resolution or the application of any such provision to any person or circumstance is held invalid, such invalidity shall not affect other provisions or applications of this Resolution that can be given effect without the invalid provision or application, and to this end the provisions of this Resolution are severable. The Oversight Board declares that its Board would have adopted this Resolution irrespective of the invalidity of any particular portion of this Resolution. 9. This Resolution shall take effect upon the date of its adoption. PASSED AND ADOPTED by the Oversight Board of the Successor Agency to the Redevelopment Agency of the City of Huntington Beach at a meeting thereof held on the 24th day of November, 2014. Ch rpersonF REVIEWED AND APPROVED: INITIATED AND APPROVED: xecutive Director Deputy Executive Director APPROVED As,TO FORM: �.gBoard CoYinsel 4 Iles. No. 2014-09 STATE OF CALIFORNIA ) COUNTY OF ORANGE ) CITY OF HUNTINGTON BEACH ) I, JOAN FLYNN, Secretary of the Huntington Beach Oversight Board of the Successor Agency of the Former City of Huntington Beach Redevelopment Agency,Huntington Beach, California DO HEREBY CERTIFY that the foregoing resolution was duly adopted by the Huntington Beach Oversight Board of the Successor Agency of the Former City of Huntington Beach Redevelopment Agency at a meeting held on November 24, 2014 and that it was so adopted by the following vote: AYES: Board Members: Bone, Carchio, L. Dunn,Tritzal, Harper NOES: Board Members: None ABSENT: Board Members: A. Dunn, Delgado ABSTAIN: Board Members: None } Secret of the Huntingto each Oversight Board o the Successor Agency of the Former City of Huntington Beach Redevelopment Agency Huntington Beach, California